The argument Obama didn't win

Few are as good at delivering a high-stakes speech as President Obama, something he proved again in Wednesday's State of the Union. The speech, which focused on jobs and the economy, was feisty, confident and -- rare for presidential addresses -- funny. The insta-poll numbers were great. Joe Klein called it "Obama at his best." It was so good, in fact, that virtually nobody noticed that Obama had already lost the argument.

The tell came a few days before, when the White House proposed a -- deep breath here -- non-security discretionary spending freeze. The inelegantly titled policy halts spending growth in a category that accounts for 13 percent of the federal budget. From the perspective of long-term deficits, that spending -- much less its growth over three years -- is insignificant.

A spending freeze might be what Americans envision when they think about deficit reduction. The only problem is, it won't do much to reduce the deficit. As the Economist pointed out, "Mr. Obama has apparently concluded that the electorate can't be expected to handle anything like a real description of the tough decisions which must be made."

It wasn't always thus. The administration's first year was premised on two very difficult, very counterintuitive and very important economic arguments. The first was that the deficit problem is a function of health-care spending. The second was that the government's role in a recession is to spend, and to spend hard. The rhetoric and policy of the past week were proof that Americans have not been convinced.

"Our health-care problem is our deficit problem," Obama said in September. "Nothing else even comes close." He's right. The Center on Budget and Policy Priorities made the point clearly in a recent report on the budget outlook. The whole game, they wrote, is Social Security, Medicare and Medicaid. "Growth in those programs accounts for all of the increase in federal spending as a share of GDP over the next 40 years," they said. Total spending for everything else, from agriculture to education to missile technology, is predicted to grow more slowly than the economy.
ad_icon

The spending freeze exempts entitlement programs. That is: It's focusing on the part of the budget that's not a problem. Social Security, meanwhile, is on a perfectly manageable trajectory. It's Medicare and Medicaid -- whose rate of spending is driven by the rest of the health-care system -- that break the budget. That's why health-care reform was so important to former Congressional Budget Office director Peter Orszag, and why the administration pushed so hard for a deficit-improving bill that included an independent Medicare Commission empowered to control Medicare costs.

But the effort was wasted, at least from a public relations perspective. A January poll conducted by the Kaiser Family Foundation found that 60 percent of Americans thought the health-care reform bill would increase the deficit, and only 15 percent thought it would reduce it. The presidential speeches, the Congressional Budget Office's estimates, the letters signed by dozens of leading economists -- none of it had worked.

The story on the stimulus is similarly depressing. At its base, the stimulus is Keynesian economics in practice. A recession hits, and individuals and businesses become scared that they're next on the chopping block, so they stop spending and start saving to protect themselves from the hard times to come. That drains demand from the economy, and without demand, the hard times get even harder. Government is the only player able to disrupt this vicious cycle. By sharply increasing its spending, it can generate demand, improving the economy until individuals and businesses are comfortable reentering the marketplace.

Key to this whole theory is that the government should act "counter-cyclically": In good times, it should save and store, and in bad times, it should spend and borrow. The exact opposite holds true for businesses and individuals, which makes the whole project pretty unintuitive.

Students in macroeconomics classes learn all this in the first week of September. After a year of trying to explain it to an economically distressed nation, however, Obama basically gave up. Instead, he bowed before the entrenched, incorrect, conventional wisdom. "Families across the country are tightening their belts and making tough decisions," he said. "The federal government should do the same."

Well, no. It shouldn't. The government should not tighten its belt until the people can loosen theirs. That's why the stimulus was a good idea, and why Obama is asking Congress for another stimulus, although this one's being called a "jobs bill." But the stimulus proved almost impossible to explain, and it was far too small, given the size of the recession. As a result, people are very worried about jobs, and they're very worried about deficits, and instead of trying to convince them that deficits make good sense until job growth is back to normal, the administration is trying to appease those fears so it can get on with the rest of its agenda.

But it means that Obama has more to fear than the 60-vote Senate or the cowering Democrats in the legislature. Obama is no slouch as a communicator, and the raw material of the recession and the long-term deficit were plenty dramatic. This was as teachable a moment as American politics can be expected to offer, but few took the lesson, which has made it difficult for the Obama administration to pass policies based on those arguments.

Changing minds is very hard. But if you can't do it, changing policies is even harder.

Meanwhile, the Senate has approved the Pay-Go policy for fiscal responsibility. This will probably have much more positive effect than a spending freeze on 13% of the budget.

They could also probably get much more bang for the buck by aggressive cost-cutting in the military budget. Everyone agrees that there's an enormous amount of waste there, but it's a political third rail to cut anything related to defense. So it must be done gradually and quietly.

There's also Medicare fraud. No one knows exactly how much is being siphoned out of Medicare by criminals, but it's pretty often described in the range of tens of billions -- enough so that eliminating fraud alone would correct the unsustainable growth curve.

"Students in macroeconomics classes learn all this in the first week of September." Things like this make me despair, a little. Yes, they learn that. But then they learn _exactly the opposite_ the second week. Didn't you stay past the first week? Keynesian multipliers are not known to be large; it is a subject of considerable controversy. The students, for instance, might be using Greg Mankiw's text, which is extremely popular. The students might also learn that there is considerable support for the opinion that exactly what the Democrats are trying to do now - is what caused the Great Depression to last so long. Paul Krugman disagrees, of course...
Macro-economics is just not well enough worked out for people to be so confident.

Two things you must address, Mr. Klien: 1) Where does Gov't get its money? It either takes it from its citizens now, borrows it from our grandchildren, or prints it. Why would any of these options be favorable to simple belt-tightening?
2) Why would anyone trust our Gov't to attend to the deficits and its overspending once job growth has returned to normal?
You carefully intimate that the masses are too stupid to understand what needs to be done, but I think the truth is more like we don't trust the Gov't, and specifically the leaders there now, to self-regulate their spending, especially 4-6 years down the road.
Your progressive mindset assumes 2 things: 1) Experimenting is always best, especially with other people's money; and 2) Our leaders will always make their decisions with our best interests in mind.
I question your assumptions.
Respectfully, JP

"Mr. Obama has apparently concluded that the electorate can't be expected to handle anything like a real description of the tough decisions which must be made."
"This was as teachable a moment as American politics can be expected to offer, but few took the lesson, which has made it difficult for the Obama administration to pass policies based on those arguments."

"This was as teachable a moment as American politics can be expected to offer, but few took the lesson, which has made it difficult for the Obama administration to pass policies based on those arguments."

Perhaps they've decided to shorten their extraordinarily long to-do list by one, and skip trying to educate us on economic realities right now.

Perhaps they're just hoping to keep the nutters at bay down in the Lido deck bingo hall while they work on turning the ship without it capsizing.

He should have been our there personally and using his team (e.g., Biden) to stump for his (yes HIS) healthcare reform, selling the idea to the American public and dispelling the misapprehensions surrounding it.

I don't think the public is necessarily as ignorant as you think. The $500 billion in Medicare savings and the independent commission would be a good way to address the long-term fiscal problem--but they were combined with the creation of a massive new health care entitlement, and such entitlements have always ended up busting the budget. Obama could have proposed the Medicare reforms without the new health care entitlement and appeared more fiscally responsible to the public.

I take a different lesson from the SOTU address. Conservatives could talk about nothing but Obama's "lecturing" the American people, saying he knows better. To an extent, they were right when it comes to health care. The details of the bill will be very popular once enacted, and Republicans know this too, despite their claims that the public would prefer the status quo.

But spending is different. Obama realizes that the argument "we got to spend our way out of the crisis!" didn't wash, and won't wash in the future. It seems reckless to people who are hunkering down for several years of poor economic conditions. He could either let Republicans hypocritically hammer him on spending while he argues *for more* spending, or he could return to the issue that Democrats will win on 9 out of 10 times--deficit reduction. Just like the stimulus, the actual spending effect of the freeze won't fully take effect for quite a while. But the political effects start kicking in immediately.

Republicans piled tax cuts, 2 wars, and a huge prescription drug benefit on the nation's credit card, and their only attempt to fight the deficit was to change the way they calculate it. Now Obama is bringing back paygo and calling for a spending freeze. And the Tea Parties are going to try to argue that their movement is about spending! Try taking that laugher to the voters...

. The students might also learn that there is considerable support for the opinion that exactly what the Democrats are trying to do now - is what caused the Great Depression to last so long.Posted by: MikeR4

--

Considerable support? A small minority of fanatic right wingers mainly associated with the dogmatic Cato Institute is what you mean.

I don't think it's a matter of losing an argument, because arguments aren't what really convinces the public. As you note, the administration's positions are difficult and counterintuitive -- and, most economists would agree, correct. It's nearly impossible to persuade the public to change their minds about difficult and counterintuitive things when the major opposition party insists on irresponsibly pandering to the public's preexisting beliefs in order to gain political advantage.

""It's nearly impossible to persuade the public to change their minds about difficult and counterintuitive things when the major opposition party insists on irresponsibly pandering to the public's preexisting beliefs in order to gain political advantage.""

This sounds correct to me. Obama has to deal with an avalanche of BS that is bigger than he is. He can't push back against the "belt tightening in hard times" narrative, so the best he can do is pivot around it. The best we can hope for is that this narrative dies by the time the next big economic catastrophe occurs.

"A small minority of fanatic right wingers mainly associated with the dogmatic Cato Institute is what you mean." Why, because they disagree with you? Or do you have a survey of economists to point to? Surveys I've seen show that more than a quarter of economists feel that way, and perhaps a plurality feel that the New Deal didn't help. Are you an economist?

Actually, the economists argue that FDR's move to go back to budget cutting in 1936 caused a double dip. They really did worship on the altar of a balanced budget as a way out of recession back then.

There has been a move by Cato fanatics and non-economist movement conservative fanatics like Amity Shales to claim that the New Deal caused or extended the Depression, but I think it is fair to say, after we allowed conservatism to have their way with the country for the last several years, that the "movement conservative" economic philosophy is a load of crap that belongs in the dustbin of history. You all can argue amongst yourselves how "true conservatism has never been tried." The rest of us want nothing to do with that.

I think Americans would be open for 'deficit spending' as long as it is efficiently used. May be American people are missing here something, but so many of them are primarily not convinced that Obama Admin and Dem Congress are 'efficiently spending the borrowed money'.

About Health Care - at one level American public got it: when 'doc fix' is going in the midst of claimed deficit reduction, or when starting years are manipulated to show the deficit reduction over a decade and when in reality House could never muster a nerve to accept Medicare Commission; it was hard to not have the opinion that this sucker was not going to solve the problem.

Finally, Krugman said it right - Obama Presidency is more of 'caretaker Presidency' rather than FDR II.

Looking back, yes Obama missed on some; but I would say Dem Congress (Senator Reid, Nelson, Lieberman and their counterparts in House like Rangel) primarily blew it up. They were given a chance and it was well understood that 'window was narrow'; but they could not pull through. Shame on them, deserve to be kicked out.

What America really cares about is who will win the Super Bowl. Public policy, economics ... BOOORRRIINNGG!! Give it to us in 20-second soundbites that a fourth-grader can comprehend. Otherwise, we're not listening; not when American Idol is on in fifteen minutes. What cynical things will Simon Cowell say next? Are Brangelina really kaput? These are the things we have to know about!

That poll about the healthcare bill is truly depressing. After a year of bills being scored by the CBO as deficit reducing and only 15% believe it. Based on what? I'd be more than happy to consider a scoring by some other non-partisan group that found the bill to be deficit busting. I'd be willing to consider a study of CBO scores that showed that they have a history of wildly overestimating savings in bills.

Instead, people are either just ignorant of the CBO score or the choose to disbelieve it for no reason that they make apparent. Truly depressing...

The New Deal did a lot to deepen and perpetuate the depression, when one discusses the parts of the New Deal nobody thinks of any more because they were repealed--such as the program that had farmers burning crops and slaughtering livestock to keep price up. Shortages of commodities and the requisite economic (and psychological) impact of these shortages were directly the fault of programs in the New Deal explicitly designed to create shortages and inflate prices.

These components of the New Deal did not last, however. And, however I might feel about TARP and the Recovery Acts, neither of them include burning crops or slaughtering livestock.

Well, no, the stimulus is not "almost impossible to explain." Neither is the impact of health care inflation.

What is almost impossible is to get Obama out in public to explain *anything.* He is the most passive president I've seen in my lifetime, and this lastest maneuver demonstrates that he also isn't a leader.

The problem with the stimulus is it was too small? Please! With all the hidden costs that 787 B dollar stimulus was something closer to 1 T dollars. I think the problme is that the American public rightly sees the "stimulus" as a big government liberal boondoggle that very little stimulating. Especially when you consider that only about 30% of it has even been spent. Now Obama wants another 100 B to 150 B stimulus, sorry jobs, bill? How about tranferring 100 B out of the original stimulus that hasn't been spent yet instead of spending it on liberal special interest boondoggles.

Also, the budget deficit is being driven by healthcare costs? The U.S. government is going to run a 1.6 Trillion dollar budget deficit this year which has nothing to do with Social Security, Medicare or Medicade since all those programs are currently running surpluses and are being used to fund the governments orgy of spending. In the future those programs will definitely be running deficits driven by the aging of the population and not enough workers to pay for them. But right now the massive Obama budget deficits have nothing to do with that. It's just big government liberal over spending. Which is the reason why they all need to get kicked out of office this coming November.

Thanks for illustrating the apparent hopelessness of teachable moments. Do you really think the current account deficit and long-term debt are the product of Obama's policies over the last 12 twelve months? Really?

Obama, with more speeches and interviews that any president before him in his first term, does get out and explain. He's just clearly not explaining it in a way that resonates with the general public.

That being said, I think the argument that Obama has lost--and that all president's have lost since LBJ--is that big, sweeping legislation is the way to get things done. Although Bush sort of got that with the Department of Homeland Security. Apparently he thought creating a giant new bureaucracy was a good way to "secure the homeland". And what a terrible name, too.

But with super-majorities, all the Democrats had to do was focus and advance certain parts of healthcare reform. Bruce Carlson (of the excellent My History Can Beat Up Your Politics podcast, which I recommend everyone listens to) suggested they should try/should have tried something along with the government's coverage for dialysis, and put together a special program to insure everybody against cancer treatments. Certainly, it still would have been contentious, but it's hard to argue against treating cancer patients as a bad or frivolous thing.

The other alternative would have been to start with something simple--a Medicare buy-in. Expanding Medicare coverage to those 55 and older. That sort of thing. As admirable as trying to get expanded or universal coverage and deficit reduction in one fell swoop is, it was over-ambitious, and I think they are paying that price more than anything else.

The perfect was the enemy of the good, and trying to correct it at the margins has just irritated almost everyone. Now there is no public option, no single-payer, special exemptions for the states of intransigent senators, and on and on. And there are still expansions of bureaucracy and costs that make promises of deficit reduction ring hollow.

Kevin Willis, when you say that "expansions of bureaucracy and costs make promises of deficit reduction ring hollow", do you mean that the public doesn't believe that deficit reduction will be achieved by the bill or that they have a good basis for the belief. Clearly, the former is true.

The latter, on the other hand, is exactly what I have found so frustrating in this debate. The CBO has scored the pending bills as deficit reducing. They're clearly experts. I have not seen or heard of another non-partisan group of experts scoring the bills as deficit increasing. If such a report exists, I've not seen conservatives relying on it. I've not seen policy experts compare the CBO's report with the other reports and explain the differences in their assumptions and which the policy expert believes to be more sound.

Instead, I've heard a lot of liberals say, "The CBO says these bills reduce the deficit" and a lot of conservatives say, essentially, "It's big government! It'll explode the deficit!"

That the bills will reduce the deficit is not fact. It won't be fact until they pass, their policies are enacted, and then the savings are seen in practice. Until then, the CBO score is the best evidence I've seen on which to base an opinion about their costs. A hunch just isn't a good argument when presented with superior evidence. That those opposed to HCR seem to rely on no evidence that I have seen is frustrating.

One last thing, "the perfect" was clearly not the enemy of "the good" in this round of HCR legislating. Liberals started out with a compromise position and bargained away literally anything they could to keep the bill moving. If HCR dies it won't be a perfect example of what liberals wanted dying for lack of support, it will be because the process of endless negotiation and compromise exposed the public to many things they didn't like, though it's debatable what those things were and why the public didn't like them. But this simply isn't a case where the hardcore base of the party staked out a position and declared that either it passed into law or they would let it die.

So I'm assuming your using the same Obama argument that the 1.6 T budget deficit in his 3.8 T proposed budget are still the fault of George Bush who has been out of office for over a year now? So in your world view at what point does Obama and the Democrats get full responsibility for the federal budget? 4 years? 8 years? You do realize that the Democrats used to give Bush and the Republicans all kinds of grief when they ran 400 B budget deficits? Obama makes them look like paupers. Also, you do realize Democrats have been charge of the House since the 2006 elections don't you? The House is where spending bills originate. And please don't give me the old were're paying for two wars BS. Both Iraq and Afganistan are only going to cost 150 B this year. A drop in the bucket in the sea of red.

The CBO numbers may be correct, but clearly there is an intuitive leap (rightly or wrongly) that concludes that a significant expansion of federal bureaucracy cannot be deficit neutral. And that, in 2000 pages of legislation, there will be a significant expansion of federal bureaucracy. I'm not saying that this intuitive leap is correct and the CBO is not (although I tend to feel the CBO scores statically, which it has to, but that the results of HCR would be dynamic and at a variance with the data and projections from which the CBO does its scoring), only that this intuitive conclusion is both reasonable, historically sound, and should have been anticipated and dealt with explicitly. Otherwise, the CBO and the congress come off like those three salesman at the timeshare presentation, huddling over you, telling you how if you rent it or resell it in 10 year it ends up being free--FREE, I tell you!--if you just sign *right now*.

Making the case that significant healthcare reform that will ensure a lot more people *and* increase the size and scope of federal bureaucracy yet will be deficit neutral, or even cut the deficit, is something that's going to require more than the scoring of the CBO (which scored the bill with all it's Medicare and other spending cuts that some feel won't actually be implemented at the end of the day).

You are right that there is no real evidence that HCR won't be deficit neutral. But a long history with government programs, and especially entitlement programs, leads a lot of people (myself included) to suspect that, irrespective of the assurances of the non-partisan CBO, HCR will not and cannot be deficit neutral. You cannot expand coverage and remain deficit neutral. You cannot score excise taxes that are designed to discourage the taxed behavior as static sources of revenue to offset new costs. Etc.

It may be frustrating, but it was also perfectly predictable. That no creditable sales job was done on how HCR could actually end up being deficit neutral is a communications problem. It's one of those things that you just can't say it;s so and have people believe it. There has to be a persuasive argument, and that argument has to be more than the scoring of the CBO, which hasn't always had the best track record in regards to scoring the future costs of entitlement programs.

Re: Perfect being the enemy of the good. Okay, fair enough. Maybe I should have just said that I think taking smaller bites would have been a more successful strategy. I think the ambitions of the bills, as scaled back as they seem to you, were still too much at one time, especially given the recent stimulus bills and the continued floundering of the economy. It would have been better to get two useful things out of a bill than to try for ten and half to make a dozen compromises on the way to getting nothing.

RobT1, I'm not going to pretend to be an expert here, but isn't at least some significant portion the deficit due to falling tax revenues caused by the economic downturn? I mean, we can argue about how best to address economic downturns, but clearly Obama didn't cause this particular downturn. And though I've seen plenty of people argue that we could be coming out of this thing faster if the government had passed a larger stimulus bill, I really haven't seen *anyone* argue that unemployment would be lower now (and thus tax revenue rising to more normal levels) if there had been no stimulus at all.

Alright Kevin, I certainly agree that there's an intuitive leap that people clearly have made that an expansion of the federal role in healthcare can't be deficit neutral. And I'm willing to entertain the possibility that it's really a communications problem due to the Administration/Congress not explaining it enough. On the other hand, it's not as if the explanations aren't there at all. I've read dozens of posts from Ezra alone that talk about cost containment measures in the legislation. I've seen the president, members of his staff, and congresspeople go on shows talking about it. But who knows, maybe there was a speech or something that could have turned it all around. What worries me is the possiblity that no such thing existed; that for whatever reason people just aren't interested in facts or evidence which run counter to their inclinations.

I must say that even though you make good points about the CBO, you make mention of the CBO's bad trackrecord without explaining what that means. Where in the past have they predicted cost savings that did not appear or predicted deficit reduction/neutrality when in actuality the law became grossly budget expanding? And keep in mind, I don't think I've heard a single Congressional Republican argue that the CBO doesn't provide accurate analysis, so while I'm open to your arguments I don't think it's something being relied on by the opposition to HCR.

My fear and frustration with this whole process has been the possibility that people just have no interest in learning about policy beyond talking points. "The CBO scored this as deficit reducing." is treated equally with "They're gonna kill your grandma!" with no desire on the part of the electorate to find out which is true. I hope that's not true. I hope it's just that Democrats didn't do enough to sell their ideas to the public.

"The exact opposite holds true for businesses and individuals, which makes the whole project pretty unintuitive."

That's not necessarily true. People are supposed to smooth consumption over their lifetimes. People should spend and borrow when they have little income, like when in college or durring retirement. People should save when they have a lot of income like when they are in their 30's 40's and 50's.

Though given the low American saving rate it is perhaps true that people don't understand economics. Or conversly, that economists don't understand people.

"President Obama's stimulus package saved jobs — but the government still needs to do more to breathe life into the economy, according to USA TODAY's quarterly survey of 50 economists.

Unemployment would have hit 10.8% — higher than December's 10% rate — without Obama's $787 billion stimulus program, according to the economists' median estimate. The difference would translate into another 1.2 million lost jobs."

Klein will continue to be confused unless and until he stops listening only to people who agree with him. The same with Obama who says that all "leading economists" or some such. There are many top economists who disagree.
The CBO can only rate what is sent to it by Congress. If they move something off the books (like the Doc-Fix) or make crazy assumptions that no one can believe, of course the figures will come back where they want them to be. It's called "cooking the books." People are on to these bookkeeping scams.
There are lies, damned lies, and statistics. The Obama Administration and the Democrats aren't fooling anybody. Except for Klein and his fellow true believers.

parkbench, what do you mean "move something off the books"? Are you referring to something not contained in the budget at all? Something done through an administrative agency rather than through Congress?

As to what economists are saying sbourne links to an article where large majorities of 50 polled economists think the stimulus helped but that more needs to be done by the federal government. It's not the best evidence I could imagine, but there it is. On the other hand, conservatives have absolutely discredited themselves to me regarding their reliance on expert positions in the climate debate. The vast majority of scientists agreed that global warming was real and man made for years while conservatives denied that global warming even existed. Then the email dustup happened and global warming deniers showed both a deep ignorance of science generally as well as completely ignoring that, still, the vast majority of scientists agree that global warming is real and is caused, at least in part, by human action.

Ezra,
I'm not getting this. It is clear as day that most Americans opposed to the Senate/House health insurance reform bills have no idea what's in them.
It seems to me that the best way to proceed is to ccnference the bill, pass it in the House and send it to the Senate. The Republicans will threaten a filibuster, of course, and the Democrats should force them to actually do it. The media outlets will cover the filibuster because it's unusual and newsworthy, and in the process educate the public about it, the super-majority issue, and the bill itself. Perhaps at that point public opinion will turn-- you mean a majority of Senators actaully voted for this?' the Republicans are being obstructionists, etc.

The best of both worlds: passing the bill and embarrassing the Republicans.